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Silvio Noel Gutierrez ID: 5958374.

Dr. Carlos Sevilla


29 February 2016
Consequences of US Government Program Aimed at Supporting the Price of Wheat
and limiting the Output of Wheat in the US.

Solution:
We get the market equilibrium price when we equal both equations( supply and
demand)
2580-194P=1800+240P
Then

Pe = $1.7972

1. We get the market equilibrium price when we substitute the last p into the
demand equation, that is

Qe =2580194 ( 1.7972 )=2231.34


2. First we need to find the intercepts of both equation with the x and y axis.
By making

Qs=1800+ 240 P

equals 0 we find that the y intercept occurs

when P=-.5
And by making p equals 0 we get that the intercept with the x axis occurs at

Q1=1800

Using the same procedure for

QD =2580194 P we get P=13.2989 and

Q2=2580
When the government fixes the price floor at p=3.20 the

QS =2568

QD =1959.2

and

(we get these values by substituting p in both equations)

Also, when the government fixes a limited domestic supply of 2425 the new
price becomes approximately 2.60. We get this value by equals 2425 to the
supply equation and then solving for P, that is:
2425=1800+240P, p=(2425-1800)/240=2.60. Then the height of the triangle
FEG is EF which is equals to 3.20-2.60=0.60
By using the graph above we get the following values:
JQ= 2231.3
KD=1800
BG=2568
KB=3.20
FG= Q S 2425 =143
EF=0.60
JK=

Pe =1.79

JQ= Q e =2231.3
BC=1959.2= quantity supplied at price floor
AB=13.29-3.20=10.09
Let us define the following areas: (AJQ) = Initial consumer surplus, (KDQJ) =Initial
producer surplus, (ABC) = consumer surplus after government intervention, and
producer surplus after government intervention is (KDGB)-(FEG).
(AJQ)=

(KDQJ)=

JQxAJ
=12829.975
2
JKx( KD+ JQ)
=3608.0135
2

After government intervention the new consumer surplus is (ABC) =

ABxBC
=9884.16 . Which means a loss in consumer surplus of $$2945.815 (Initial
2
consumer surplus- consumer surplus after government intervention)
Now let us analyze the change in producer surplus:

(KDGB)-(FEG)=

KBx ( KD+ BG) FGxEF

=6988.842.9=6945.9 , which means a gain


2
2

in producer surplus of $$3337.8865 (Consumer surplus after government


intervention initial consumer surplus)